Disclosure Letter Misrepresentation Claim to Proceed to Trial

A recent High Court decision has clarified that statements made in a draft disclosure letter during a corporate sale may give rise to a claim for fraudulent misrepresentation. The ruling highlights the potential legal consequences of pre-contractual disclosures in M&A transactions.

Claim Will Not Be Struck Out

The High Court has refused to strike out a claim that statements made in a draft disclosure letter during a corporate sale could amount to fraudulent misrepresentation.

In a significant commercial decision, the court held that a buyer’s claim against Johnson Matthey PLC for deceit arising from pre-contractual disclosures had a real prospect of success and should be considered at trial.

Background to the Dispute

The dispute arose from Veranova Bidco LP’s acquisition of Johnson Matthey’s “Health Business,” completed in May 2022. Veranova claims it was misled about the financial risks posed by ongoing price negotiations with one of Johnson’s main customers, Alvogen.

The Draft Disclosure Letter

Central to the claim is a draft disclosure letter circulated by Johnson Matthey the day before the parties signed the share purchase agreement in December 2021. Veranova argues that the letter included misleading factual assertions—specifically that it was not possible to quantify the financial impact of price negotiations and that no competing offer had been received by Alvogen.

Veranova alleges that Johnson Matthey was already aware of a lower-priced third-party offer and intended to match it, significantly reducing revenue from that contract. It argues these statements were false and relied upon when deciding to proceed with the acquisition.

Johnson Matthey’s Defence

Johnson Matthey sought summary judgment, arguing that disclosure letters are intended solely to limit liability for warranty breaches—not to provide factual representations. It relied on contractual clauses that excluded representations not expressly stated in the agreement.

Court’s Reasoning

However, the court disagreed. In his written judgment, Deputy High Court Judge Sean O’Sullivan KC said there was no general legal rule that prevented a draft disclosure letter from containing actionable representations, especially in cases involving allegations of fraud.

“The giving of a contractual warranty does not, without more, amount to the making of an actionable representation,” he said. “But beyond that… it all depends.”

He held that it was not “inherently absurd or implausible” for a disclosure letter to provide information upon which a buyer might reasonably rely. Whether the disputed statements amounted to misrepresentations would require a full investigation of the facts at trial.

Trial Required

The judge dismissed the application for strike out and summary judgment, describing the case as fact-sensitive and unsuitable for early disposal.

This decision aligns with broader judicial caution around early dismissal of fraud claims, as discussed in the Law Gazette’s article on claims of a false and misleading case.

Get in Touch

Please contact us if you would like more information about the issues raised in this article or any aspect of commercial litigation. We know that legal disputes can be disruptive and time-consuming, which is why we focus on delivering clear, practical advice—quickly and cost-effectively—so you can stay focused on running your business.